We're already officially in a bear market. On Thursday, the MSCI All-Country World Index fell 1.3%, giving it a 20% decline since last May.

Issues such as slowing economic growth in China, $5 trillion of emerging market debt, and rock-bottom oil prices have made investors increasingly skittish.

But now the world's central banks have started to toss gasoline on the fire in the form of negative interest rates. The lower they go, the more likely they are to trigger a global stock market crash in 2016.

A negative-interest-rate policy (NIRP) is the latest Hail Mary pass from the central banks after extended periods of zero interest rates and quantitative easing (QE) have failed to restore economic growth.

A negative interest rate means that instead of receiving interest on deposited money, you have to pay the bank that's holding it. It's supposed to stimulate bank lending and encourage spending.

The trend started in Europe.

Negative Interest Rates Gain Momentum

The European Central Bank (ECB) ventured first into NIRP in June 2014, when it set its benchmark rate at -0.1%, then dropped it to -0.2% just three months later. In December 2015, the ECB cut its rate to -0.3%.

Other European central banks followed suit – Denmark, Switzerland, and Sweden.

On Jan. 29, the Bank of Japan hopped on the NIRP bandwagon, dropping its key rate to -0.1%.

Speculation is rising that the U.S. Federal Reserve could be the next central bank to "go negative."

In testimony before the Senate Banking Committee on Thursday, Fed Chairwoman Janet Yellen was asked about the possibility of imposing negative interest rates if the U.S. economy falters.

"In light of the experience of European countries and others that have gone to negative rates, we're taking a look at them again because we would want to be prepared in the event that we needed to add accommodation," Yellen said.

But Yellen and her pals on the Federal Reserve board had better tread very carefully. NIRP has been a disaster in the places that have adopted it.

Going by what's happened in so far in Europe and Japan, the Fed going to negative interest rates would not only fail, it would make a global stock market crash almost inevitable…

How NIRP Has Failed

NIRP has made things worse everywhere it has been tried.

Take Sweden. Its Riksbank went negative at -0.1% exactly one year ago and has dropped its rate several times since. Just this week the Riksbank took the rate down to -0.5%.

NIRP has failed to nudge inflation anywhere near the Riksbank's 2% target; it remains close to zero. Except for housing, which is forming a dangerous bubble.

The ECB's NIRP has met with similar failure. Inflation in the Eurozone is just 0.4%, far below the 2% target. And economic growth slowed in each of the last two quarters of 2015 to just 0.3%.

As for the European stock markets, they're all down. Since April 2015, the German DAX is off 25%, the French CAC 40 is down 20.5%, and the Italian MIB has fallen 28.6% – all in bear market territory.

While investors typically cheer monetary easing by central banks, they seem to be wising up.

When the BOJ went negative at the end of January, the party only lasted two days for the Japanese stock market. Since Feb. 1, the Nikkei index has swooned by nearly 15%.

"The latest shift by several central banks to a negative-interest-rate policy seems to be weighing on stocks and may be working against their intentions of promoting economic growth," said Jeffrey Kleintop, chief global investment strategist with Charles Schwab & Co.

But negative interest rates haven't just failed as a stimulus. They pose dangers to the entire financial system that easily could blow up into a global stock market crash.

How NIRP Could Trigger a Global Stock Market Crash in 2016

One great risk of NIRP as more central banks adopt it is that it will fuel the currency wars. So to keep their competitive advantage, central banks will have to keep setting rates deeper and deeper into negative territory.

But the more negative the central banks go, the tougher life will get for that nation's financial institutions.

Tighter regulations already have squeezed profits at banks in Europe and the United States. But negative interest rates threaten their most reliable income source: the difference between what a bank pays for deposits and what it makes from loans.

German banks get 75% of their income from this source, for example. Falling interest rates chopped revenue at German banks from $471 billion in 2007 to $230 billion in 2014.

And so far, European banks have shied away from charging customers on their savings deposits for fear of the backlash.

If NIRP becomes the norm, pressure on bank profits will grow. Banks will become weaker and act as an additional drag on the economy. Central banks will feel compelled to keep lowering rates.

The spiral will squeeze capital at the banks, crippling their ability to make loans. Any kind of liquidity crunch in 2016 would devastate an already weak global economy and lead directly to a global stock market crash.

Given that central banks, including the Fed, appear blind to the danger of negative interest rates and how they could end up causing a stock market crash in 2016, investors need to start taking precautions.

How to Prepare for a Stock Market Crash in 2016

"The world is headed down a path of exploding debt, fiat money, and negative interest rates for which there's simply no historical precedent," said Money Morning Resource Investing Specialist Peter Krauth. "In this scenario, your best line of defense is to own some gold and silver as both insurance and for the serious upside potential."

Krauth says investors ideally should buy physical gold and silver, but can also opt for an exchange-traded fund.

For gold, he likes the Sprott Physical Gold Trust (NYSE Arca: PHYS). It holds gold bullion that is fully allocated and stored at a secure third-party location in Canada. And for silver, Krauth favors the Sprott Physical Silver Trust ETF (NYSE Arca: PSLV). PSLV also holds its silver bullion fully allocated and stored, as is the gold held in PHYS.

The Bottom Line: Negative interest rates are the last resort for central banks desperate to boost their economies. But NIRP isn't working. And the risks negative rates pose to banks will cause a liquidity crunch that will lead to a stock market crash. As insurance, investors should buy some gold and silver.

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